Problem Solving Survival Guide to accompany Financial Accounting, 8th Edition

SOLUTION TO EXERCISE 11-12

TIP: Notice how the columns on this statement foot and crossfoot.

Explanation: A corporation is to disclose all changes that took place in all stockholder equity items during the reporting period. A convenient and effective way of meeting that requirement is to present a stockholders' equity statement (sometimes called a statement of stockholders' equity). When this statement is presented, it replaces the retained earnings statement because it contains all the information that a retained earnings statement would contain plus data regarding changes in other components of stockholders' equity.

The computations for the stock dividend are as follows:

1. 346,000 shares outstanding × 5% = 17,300 dividend shares.
2. 17.300 shares × $3 = $51,900 decrease in Retained Earnings.
3. 17.300 shares × $1 stated value = $17,300 increase in Common Stock.
4. 17.300 shares × ($3 - $1) = $34,600 increase in additional paid-in capital.